Gary Sauer-Thompson has trained an observant eye on an editorial in the Fin:
Yes, the road ahead looks difficult. But this is no time to abandon our faith in the capacity for enterprises and markets free of oppressive state intervention to reinvent ourselves and bounce back. Human ingenuity will prevail, confidence will eventually return and the wheels of commerce will spin again. There is too much evidence that the world, despite periodic setbacks, continues to progress.
He parses this intriguing paragraph thus:
Interesting isn’t it. The defence of free market capitalism depends on faith not on reason. Reason cannot do the job any more given the global financial crisis and its aftershocks on the economy. So faith is called in to plug the gaps.
Of course, faith was always a big component of economic liberalism. Enlightenment doctrines (and Marxism is another), having toppled God from his epistemological throne as the prime cause, took on some of the characteristics of the theism they thought they’d banished. So economic science has always been contaminated by ideology. Normative values such as “progress” and “ingenuity” underpin a worldview which partakes in blindness as well as insight. Now that a leap of faith is required to defend one’s choice of belief, we’re beginning to see this aspect of economic liberalism in plain view. We’re being asked to sign up to a metaphysics.
Coincidentally, John Quiggin has posted the inaugural number in a promised series of observations about economic doctrines which have been discredited by the Global Financial Crisis. First cab off the rank – the efficient markets hypothesis. His conclusion?
Once the EMH is abandoned, it seems likely that markets will do better than governments in planning investments in some cases (those where a good judgement of consumer demand is important, for example) and worse in others (those requiring long-term planning, for example). The logical implication is that a mixed economy will outperform both central planning and laissez faire, as was indeed the experience of the 20th century.
If we follow Quiggin in his reasoning, we’re effectively aligning ourselves with the sceptical and reflexive reasoning which is another legacy of the Enlightenment. It’s not as much fun as blind declarations of faith in the face of contrary evidence, and sorting folks into friends and enemies, the saved and the damned, but it’s a much better basis for managing an economy which needs to fulfil multiple objectives – including those of social justice.
Update: The second in Quiggin’s series – refuting the case for privatisation.
Update: This post now has a sequel.
The editorial says “There is too much evidence…” (And of course, there is.) Yet the critique soldiers boldly on with its pre-fabricated sneer about ‘faith.’ Leftists see only what they want to see; it’s what makes them leftists.
There is too much evidence for me to think otherwise.
One should add that when the editorial says “this is no time to abandon our faith…” the word “faith” is used in a meaning much closer to “confidence” than “blind faith as opposed to reason.”
The paragraph is discussing choices which one might make among methodologies, and is advocating the position that one not change horses lightly, in the face of one acute catastrophe, when the long-term chronic evidence contraindicates a panicky response. In other words, the very essence of reason. But since leftists have so very little experience of reason, the error is hardly surprising.
Enlightenment doctrines (and Marxism is another), having toppled God from his epistemological throne as the prime cause, took on some of the characteristics of the theism they thought they’d banished.
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Indeed. ‘S why Nietzsche called JS MIll a blockhead (or was it flathead). Mill didn’t see that his liberalism was founded on Christian assumptions. I think it was Galbraith who observed that, as economic paradigms change sans the the discovery of new information (unlike physics or biology) it was safe to assume it wasn’t entirely ’scientific’.
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That said the spending spree and control freakery of the Neo-Keynsians thus far inclines me to think the Mises crew have a point.
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Here’s a hint: when something in the marketplace makes absolutely no sense (that would be derivitives) than that’s probably because it’s shite.
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Trouble is the Manichean Shitfight aways triumphs over common sense. It’s called Homus Stupiditus.
Lotsa weasel words there.
Noteworthy in the Fin sermon is the admonition against “oppressive state intervention”.
Is the quality of “oppressiveness” to be measured by how many resources the state invests, where those resources are invested, how those resources are invested, who are the beneficiaries of those resources, or a complex combination of all of these factors?
Thus, is the Bush administration’s application of inconceivably huge sums of money more inherently “oppressive” than the fact that much of it was designed to save Bush’s cronies?
Bush proclaimed himself in his own inimitable way to be “a free market guy”. Is this how “free market guys” behave these days?
Where are the true heroes of the “free market”?
Where are their screams of protest?
Is the Fin screaming at Bush?
*cue crickets*
@1 and 2 – the sneers about “leftists” (whoever they are) really just prove the point about faith motivating a division of the world into good and bad, friends and enemies.
An attentive reader might have noticed the reference to Marxism, and the final paragraph which suggests that we’re better off seeking a multiplicity of objectives – including but not restricted to social ones – by minimising our reliance on dogmatic belief, if it falls down when tried against the evidence.
An attentive reader might have been primaily pre-occupied with the egregious inaccuracy (coupled with a certain smug superiority) of G S-T’s critique, which you called “observant” and which I have tried to demonstrate is merely a misreading — whether willful or silly-minded, it’s hard to tell.
As for my sneering in 1 and 2, my apologies if it was too much, but since GST’s critique strikes me as thoughtless and from-the-hip as well as snarky, I merely thought one good sneer deserves another.
Your remark about Marxism/Enightenment doctrine could certainly be interesting in a far broader and deeper intellectual light, but in this instance it seems predicated on your opening gambit, which I think does not demonstrate what you thought it did (and I have tried to show this, whereas you’ve not pointed out where/how I go wrong). So I think you may have to re-examine (though not abandon necessarily) the implications of your position. Sorry if the first two comments were too curt, though. (But ain’t that part of the fun?)
Thanks for that – I’m certainly happy to re-examine the implications of my position. I should point out that I was using Gary’s point to riff off more than anything else, and if you want to take him to task over it, it’s probably better done in comments on the source post where he’s more likely to read what you have to say.
You are reading far too much into the Fin editorial, which would have been written by a 23 year old quarter-educated snot nose.
Yeah, but that actually means that it’s “common sense” – ie ideology – being articulated!
It seems uncontroversial to say that ‘ Austrian economics’ is now as dead as Marxist economics. That would appear to be a broad consensus. And the message for all serious anti-capitalists is clear. The state is the weakest link of capitalism.
The state should be the revolutionary subject. Later for capitalists.
Sure, but why worry about the ideological twaddle of some junior journalist – so junior that s/he was forced to work over the holiday period while his/her betters are on the beach? You can hear the same opinions in any pub at any time, especially late at night. If you did, you wouldn’t give them a second thought.
The Fin Review is a paper of record for the privileged class… You don’t think these sentiments actually underpin the beliefs of a lot of people?
That AFR editorial paragraph is quite uncontroversial, albeit anodyne.
We had better, all of us — lefties as well as righties — have faith in the capacity for enterprises and markets to reinvent themselves and bounce back. Because almost every dollar required by JQ’s mixed economy will come from private enterprises and markets. If they fail, the necessary tax base collapses, and we are all up a particular creek, wondering what happened to our paddles.
Sure, Paulus, but they won’t bounce back without “oppressive state intervention” – in the leader writer’s terms.
Well, they can give me a job as an oppressive state intervenor, then. I’m available, my salary demands are modest, and you wouldn’t believe how long I’ve wanted to wear jackboots and a sleek uniform to work.
Let me just say (because I didn’t put up any comment on the ‘official’ New Years thread): I’ve enjoyed reading this blog in 2008. In fact it’s become a daily habit! Best wishes to you and the rest of the LP gang for ‘09.
It is risible to treat as realistic any talk about jackboot-shod state intervenors in advanced societies like Australia.
These symbols of state oppression belong to command economies driven by Leninist or fascist ideologies.
However, in the United States in 2008 the world has witnessed an unprecedented level of state intervention in the market.
The editorialist of the Fin, and all other self-proclaimed champions of market ideology owe it to themselves to decide whether Bush’s interventions are “oppressive”.
And if not, why not.
To quote Mandy Rice-Davies, “they would say that, wouldn’t they..?”.
When the suits pop up on TV and assure us all that “..the markets will come back..” it simply begs the question whether there is a “back” to which to return.
They surely can’t mean the ‘bubble of irrational exuberance’ that anyone with a $5 calculator (or basic arithmetical awareness) could see was a con?
I suppose that what worries me most is that they DO believe – like a pre-Copernican calculator.
epicine @ 16.
Thank you, thank you, thank you. At last, someone has stated the obvious that has been lost in a welter of economic claptrap. Also, thank you Mark for your reference @ 9 to “common sense”.
Of course the market should be regulated! This attitude of “let them get on with it – children must be allowed the freedom to express themselves” is simply wrong. How can anyone express confidence (let alone faith) in a system that allows the feeding frenzy of a mob of slavering money gluttons to impact so disastrously on the world at large? Ever since the demise of the Soviet Union and the threat of it as a perceived alternative role model our free market has been on an 18-year acid house party that has now ended in tears. Who knew? Let’s be honest, just about all of us. I have no illusions about my intellectual capability but I was able to successfully warn my children against the rabid exhortations of many financial institutions as they irresponsibly encouraged debt to feed the latest “shit re-packaged as gold” investment products. I didn’t know they were doing that of course, I just knew in my gut that it was all somehow “wrong” and that it must implode at some stage.
Let me be clear, I believe the global economy should be free market based. However, I don’t believe “free” should include criminal manipulation of the system. And for those who continue to claim that nothing criminal happened here, well you can shove your slithery arguments. And as for faith?….Laugh? – I nearly smiled.
Katz, I was being silly at #14 with reference to jackboots.
And surely the point of the interventions by Bush, Brown, et al, so far, is that they have done as much as possible without being oppressive. You do not oppress a wobbly financial institution by giving it the bailout it is begging for.
There are also a range of measures which will not be regarded as oppressive because they reflect reforms urged by many market participants themselves: transparency and disclosure rules, changes to accounting standards, and so on.
But will some governments this year try to go beyond that? Will they set limits on the level of risk financial institutions can assume? Will some sorts of mortgage-based derivatives be banned altogether? Will there be a concerted effort to reduce the mobility of capital? This is where the ideological differences between left and right will come into sharp focus.
Planet Money on some other aspects of economic theory which need to be tossed out:
http://www.npr.org/blogs/money/2009/01/new_economic_theory.html
True.
But many of those interests now clamouring for bail-outs were only weeks ago the most ardent anti-interventionists.
Moreover, one group of “market participants” who weren’t asked are the taxpayers who have become the involuntary underwriters of these erstwhile champions of non-intervention.
It seems uncontroversial to say that ‘ Austrian economics’ is now as dead as Marxist economics.
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But Austrian influenced economists predicted this latest brouhaha! Just sayin’.
Well, so did Marxist economists!
The Busheviks at at it again!
WASHINGTON (AP) — The Treasury Department opened the door Friday to using a Citigroup-style rescue package to help other troubled financial institutions.
The financial lifeline thrown to Citigroup Inc. in late November involved backing billions in risky assets and providing the banking giant with a fresh capital infusion.
Treasury said participation by other companies in such a program would be weighed on a case-by-case basis. Treasury said it would consider, among other things, whether the “destabilization” of a financial institution could threaten the viability of creditors and others. It also would weigh the extent to which the institution faced a loss of confidence because of the troubled assets it held.
The information was contained in guidelines for the initiative, dubbed the Targeted Investment Program, unveiled on Friday.
Separately, a new program that provides government backing for a financial institution’s potential losses from risky assets will be used sparingly, the department said. Congress required that the insurance program be created as part of the $700 billion financial bailout package enacted in October.
“This program will be applied with extreme discretion in order to improve market confidence in the systemically significant institution and in financial markets broadly,” the department said. “It is not anticipated that the program will be made widely available.”
My emphases.
This announcement has come at the usual time — after the weekend closure of US markets and in time for the truly important decision-makers to mull it over — Asian capital markets.
All this means that even if the Busheviks didn’t predict the collapse, they are certainly predicting more collapse.
Btw, I think the emphasis on prediction is overplayed. From both Austrian and Marxist ends of the spectrum, there’s a belief that things are fundamentally not as they ought to be, which encourages a mindset which contributes to the propensity to predict that all will end in doom. I dare say that psychologically there’s a bit of frustration there as neither perspective has policy solutions the majority of which have a snowflake’s chance of hell of being implemented.
Update: The second in Quiggin’s series – refuting the case for privatisation.
I guess “oppressive state intervention” is in the eye of the beholder. And, Mark, I don’t think the Austrian’s or Marxists are alone in having no policy solutions. I’m not convinced anyone has and governments of whatever their persuasion are stabbing in the dark.
I’ve spent the last month trying to raise finance for a government subsidised project (to provide affordable rental housing), ironically designed to fix a pre-existing market failure. No bank seems to want to touch property finance at the moment despite all the financials on this project stacking up very well, especially now interest rates have dropped.
However, anodyne the AFR editorial is, it’s speaking to these bankers and others who are entirely creating their own (gloomy) future by losing faith in enterprise and markets.
Yep, Angharad, it’s fair to say that there’s an absence of innovative thinking about policy solutions all round – I’ve blogged about that before in the context of the GFC. Not a lot really interesting has come from economists who might be described as post-Keynesians – I think the power of the neoliberal ideology was so strong everyone got pulled towards it while its practitioners were trashing the joint and governments were proceeding (as they often do) by rote and asleep at the wheel.
Paul Keen (a neo Keynesian) did a good job of both predicting the GFT and has some policy proposals. Peter Schiff, an Austrian, did likewise. Both focus on the amount of leverage available. Similarly, Paul Ormerod (who has also been on the money with the GFT) made the following observation in Prospect (an interesting left-ish British mag) a couple of years back:
More here.
GFC. Sorry, fumble fingers.
A lot of you seem to think capitalists are defending Bush’s market bailouts, I think you need to read more. All the serious ones I’ve read are dead against them, proposed by Bush or otherwise. It’s only the social conservatives still defending Bush against accusations of socialism.
I also think the social-democrats here like to pick on Austrian economists because they are the easy targets when trying to discredit capitalism. The truth is neo-classical (Chicago School) economics is where it has been for quite a long time now, Austrians are rarely (if ever) published in journals because they philosophise on economics rather than attempt to use any econometrics to prove their theories. that is, Austrians don’t use the scientific method, but other, more widely published free-market schools most certainly do.
There really are very few of them to target and I think you probably know this, yet use them as an example because it makes your own point of view seem the more logical one in contrast. If you were serious you’d be comparing your point of view with the kind of free market economics preached in journals, not by dreamers at Catallaxy.
I wouldn’t dispute with the author that there’s “too much evidence” that the world will continue to progress, and that human ingenuity still has plenty of capacity left in it. What I don’t see is a great deal of evidence that “oppressive state intervention” does a lot to stifle human ingenuity – for instance, no doubt many would consider carbon taxation a form of oppressive state intervention, but I’m willing to predict that carbon taxation will trigger forms of ingenuity that simply wouldn’t have happened otherwise (just like pollution controls triggered development of the catalytic convertor, or healthy & safety laws have consistently forced business to find innovative methods of makes their products healthier and safer).
I’m far more worried about oppressive state intervention in terms of personal freedom than economic freedom. Almost everybody I know seems to have this general feeling that there are far too many unjustifiable laws controlling what we can’t or can do…whether it’s the ability to enjoy a bonfire at a beach (surely one of the safest places you could light one), partake in the occasional recreational drug that’s almost certainly less harmful than alcohol or nicotine, or just to be able to browse the internet without a nanny state watching over us, deciding what is and isn’t suitable for viewing. It may be that each individual law has some amount of justification to it, but as they pile on top of each other it’s hard not to feel like governments have some how decided that the public is no longer capable of making sensible decisions for themselves…but if it’s true that we’re not always well placed to make good decisions about the risks of certain activities, then surely the better option is to provide more information to help us make those decisions, and not to shut down our need to make decisions at all.
Of course, faith was always a big component of economic liberalism. Enlightenment doctrines (and Marxism is another), having toppled God from his epistemological throne as the prime cause, took on some of the characteristics of the theism they thought they’d banished…
Now that a leap of faith is required to defend one’s choice of belief, we’re beginning to see this aspect of economic liberalism in plain view. We’re being asked to sign up to a metaphysics.
Economic liberalism works best for those who accept or the ethic of its founders – the Protestant bourgeois. This is the ethic of bourgeois individual autonomy constrained by patriarchal institutional authority. Where the patriarch is the stern father, fire-breathing preacher, disciplinarian teacher, honest businessman and so on.
In short capitalist individual rights need to be balanced by more or less religionist institutional duties. Otherwise economic liberalism does not work or goes hay-wire when sabotaged by swindlers.
Its obvious that the cultural foundations of economic liberalism suffered tremendous set backs with the sudden extinction of the WASP character type. (THis type is still influential in its NE Asian imitators and precursors.)
In the absence of WASPs and their ilk we have to fall back on stricter political controls of liberties. Political authority has to constrain bourgeois professional liberties, to oblige businessman’s accountability to the firms economy. Just as it must also constrain bohemian personal liberties, where people are liable to get up to mischief when father figures are dysfunctional or absent from the household economy.
[The physicist] must appear to the systematic epistemologist as a type of unscrupulous opportunist.
Albert Einstein
When the facts change, I change my mind. What do you do, sir?
J M Keynes
Spankier Jack M. Strocchi
“I miss Daddy’s firm hand. He could punish me firmly for my own good for not being born a WASP.”
“…with the sudden extinction of the WASP character type.”
Oh they’re still around – running things like Enron, Merill Lynch, Worldcom, the Bush Administration, General Motors, JP Morgan Chase, Suntrust, AIG, Wells Fargo, Citigroup, etc, etc.
“In the absence of WASPs and their ilk we have to fall back on stricter political controls of liberties.”
Speaking as a WASP I agree. Let’s start by rounding up all the wogs and their descendents who imported their Mafia and Fascist tendencies here. And their greasy foreign food too.
Well OK, maybe not running as many productive enterprises as they used to. But no doubt it’s all the fault of those overindulging in “bohemian personal liberties”.
Opps. I mixshuffled some paras in my lat post.It should read:
Spankier Jack M. Strocchi
“I miss Daddy’s firm hand. He could punish me firmly for my own good for not being born a WASP.”
“…with the sudden extinction of the WASP character type.”
Oh they’re still around – running things like Enron, Merill Lynch, Worldcom, the Bush Administration, General Motors, JP Morgan Chase, Suntrust, AIG, Wells Fargo, Citigroup, etc, etc.
Well OK, maybe not running as many productive enterprises as they used to. But no doubt it’s all the fault of those overindulging in “bohemian personal liberties”.
“In the absence of WASPs and their ilk we have to fall back on stricter political controls of liberties.”
Speaking as a WASP I agree. Let’s start by rounding up all the wogs and their descendents who imported their Mafia and Fascist tendencies here. And their greasy foreign food too.
I can see the movie now, Holy Father of the Blogosphere.
[Camera pans back, Jack Strocchi the last patriarchal WASP type, rides a horse on the beach in front of a statue representing Bohemian Personal Liberty]
You maniacs! You blew it up! Damn you all to hell!
The GFC was caused by state intervention via artifically expanded money supply for way too long and lowering of credit worthy standards for loans to minorities. What is happening now is we are trying to fix intervention via intervention and for awhile it’ll probably work the negatives manifesting later. If confidence has returned to a satisfactory level by then that may not matter to Joe Average.
It is a bit of a sideline issue but another interesting facet I think of the GFC bailouts is they may end up as massive financial boons for the US Fed Govt. They have been able to acquire great swathes of the US financial system at rock bottom prices. Somewhere in the next 5 years or thereabouts Obama will be able to have a massive sell off that could yield at least hundreds of billions if not trillions in profits. Some have said it might rival the Louisana and Alaska purchases as financial masterstrokes.
So the Democrats and Greenspan will have caused the GFC and Bush will be blamed for it by the media and then Obama will reap the bonanza stemming from it. You lefties are laughing to the bank literally!
Well, so did Marxist economists!
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Hi and welcome to Economics 102: N’ah n’ah n’ah
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I’m really not partial to one or the other school of economics Mark. A whole lot of people didn’t see this coming. Thing is every economic theory gets distorted by the political proces and vested interests. And thus every advocate of said theories can always claim they woulda worked if only.
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You have a link for any of those Marxists btw?
Jack – In the absence of WASPs and their ilk we have to fall back on stricter political controls of liberties.
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Indeed it was better when Brittania ruled us. I think you’ll find that this sort of stuff pre-exists the ‘demise’ of the WASPS. The South Sea Company was established by Robert Harley. Sounds pretty white bread to me.
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Political authority has to constrain bourgeois professional liberties, to oblige businessman’s accountability to the firms economy. Just as it must also constrain bohemian personal liberties, where people are liable to get up to mischief when father figures are dysfunctional or absent from the household economy.
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Yes bohemians, sigh, we all lack father figures. Or at least the type father who figgers he can tell us what to think for the rest of our lives.
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This move to restrain bourgeois liberties as you call it will probably create another layer of regulation which won’t do what it’s supposed to but will gum up the works. The South Sea Bubble, the sub-prime crisis it’s the same. A bunch of people looked at FeS2 and thought it was Au . What can you do?
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Anybody who actually hears what people mean by derivatives and thinks it’s a good idea would probably have fallen for the South Sea Companies obviously bogus pitches as well.
“Anybody who actually hears what people mean by derivatives and thinks it’s a good idea would probably have fallen for the South Sea Companies obviously bogus pitches as well.”
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But they had Nobel Prize Winners who wrote very sophisticated mathematical equations about how to set prices for their derivatives.
Who would question such august authority and anyway who cares while we ( a select group of course -not by any means only wasps, believers of certain faiths or unscrupulous cads with no guiding moral light )all make lots of lovely moola?
Confidence is al that is needed , Adrien, confidence!
Confidence is al that is needed , Adrien, confidence!
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Dude when the IT boom was on everyone and his dog had a start-up and was waxin’ lyrical about how everyone was gonna get rich with lots of fancy techno-speak. I had two questions: What product/service do you provide, and: Do people want to pay money for it?
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Keep it simple stupid.
Adrien @ 38 – try the back catalogues of New Left Review and Capital and Class – but you have to be a subscriber or access them through a library website with a subscription to read them…
Sequel to this post:
http://larvatusprodeo.net/2009/01/05/economics-and-ideology-u-r-doin-it-wrong/